Ian Cowie was named Consumer Affairs Journalist of the Year in the
London Press Club Awards 2012. He has been head of personal finance at
Telegraph Media Group since 2008, having been personal finance editor
since 1989. He joined the paper in 1986. He is @iancowie on Twitter.

Tax time-bomb ticking behind 'bigot' political knockabout

You would need a heart of stone not to laugh at Gordon Brown’s embarrassment when he accidentally told the world what he really thought of life-long Labour voter Gillian Duffy. But the really serious side of this shocking exposure in the most exciting election in many years is that it makes it even less likely we will get down to serious business in the televised leaders’ debate tonight. None of the political parties has properly set out how they intend to tackle the budget deficit that could plunge Britain into the same crisis that the Greeks find themselves in now.

Tax is the point at which politics condenses into more than hot air and hits you in the pocket. But voters remain as excluded from the next government’s fiscal plans as those reporters locked outside Mrs Duffy’s home yesterday.

Accountants have studied the detail of the parties’ tax policies and much the best that I have seen was produced by the team led by Richard Mannion at Smith & Williamson. While it is concise it is also comprehensive and so rather breaks the blogging convention of brevity.

But for anyone interested in what the politicians have committed themselves to on the personal tax front, I reproduce the S&W guide nearly in full below (minus the corporate tax chapters). It might be interesting to compare and contrast with what the politicians say on the box tonight.

1. GENERAL TAX POLICY

1.1. Conservatives

Cut wasteful Whitehall spending rather than increase taxes.

Create the most competitive tax system in G20 within five years, restoring simplicity, stability and predictability. Set out a five year road map for corporate tax reform to provide greater certainty and stability for business. Introduce an Office of Tax Simplification to suggest reforms to the tax system.

Reduction in corporation tax rates to be funded by reductions in capital allowances and scrapping complex reliefs.

Pay freeze for one year for public sector workers other than the one million lowest paid.

1.2. Labour

Create an enterprise environment that gives active support to those who wish to start their own business.

Make further progress in cutting the costs of regulation on growing businesses, especially the smallest, with a new goal to cut the cost of regulation by a further £6.5 billion by 2015 (£1.5 billion in unnecessary paperwork and record-keeping, and £5 billion in the wider regulatory costs that impact upon business).

Take steps to cut the budget deficit with 60% of tax rises being paid for by the top 5 per cent of earners. Plan to halve the deficit in four years through fair tax increases, firm grip on public spending, strategies for growth and reduced spending on benefits.

Increase all NI rates by 1% from 6/4/11. Considered to be fairer than increasing VAT.

No increases in income tax rates in next Parliament and no extension of VAT to food, children’s clothes, books, newspapers and public transport fares. Will maintain tax credits.

Cap public sector pay rises at 1% for two years. Reforms to public sector pensions.

1.3. Liberal Democrats

Rebalance the tax system by cutting taxes for people on low and middle incomes, paid for by cutting reliefs and closing tax loopholes that benefit the wealthiest and increasing taxes on aviation.

Tackle tax avoidance and evasion.

Achieve £14 billion of potential savings including scrapping the Child Trust Fund, regional development agencies and various defence procurements. Set a pay rise cap of £400 for public sector workers for two years, restrict tax credits, end Government payments into child trust funds, and introduce a banking levy.

2. INCOME TAX

2.1. Conservatives

Charge a flat-rate levy on UK residents of foreign origin who are tax-domiciled offshore, to pay for increase in IHT nil rate band.

Abolish income tax on all savings income for everyone on the basic rate of tax with top rate taxpayers continuing to pay the same as they currently do.

Raise the tax allowance for pensioners by £2,000.

Transferable personal allowance for married couples which will only benefit basic rate taxpayers.

50% top rate to stay as long as the public sector pay freeze is operational.

Will restore tax reliefs previously available through the furnished holiday lettings regime.

2.2. Labour

No increases in the basic, higher or top rates of income tax in next Parliament. The new 50% top rate to remain in place for the whole term of the next Parliament.

Remove the furnished holiday lettings rules that treat such businesses as a trade rather than property businesses.

2.3. Liberal Democrats

Raise the threshold at which people start paying income tax from current levels to £10,000, cutting the average working age person’s income tax bill by £700 pa and cutting pensioners’ income tax bills by £100 pa. These plans will mean that almost four million people on low incomes would no longer have to pay any income tax at all. This proposal has been costed at £16.7 billion, to be paid for by reforming CGT, restricting tax relief on pension contributions, the mansion tax, switching from Air Passenger Duty to a per plane tax and anti-avoidance measures.

Close tax loopholes and cut reliefs that benefit the wealthiest.

Restrict tax relief on pension contributions to the basic rate, so that those on high incomes do not benefit disproportionately.

Reform the system of taxing non-domiciled individuals so that after seven years they will become subject to UK tax on all offshore income.

3. NATIONAL INSURANCE CONTRIBUTIONS

3.1. Conservatives

Any new business started in the first two years of a Conservative Government to pay no Employer National Insurance on the first ten employees it hired during its first year.

Would reduce the impact of the proposed 1% National Insurance rise in April 2011 by increasing the employee’s earnings threshold (before they start to pay National Insurance) by £24 per week and the upper earnings limit (after which the upper NI rate is due – currently 1% but 2% from April 2011) by £29 per week. The earnings threshold before employers’ contributions commence will also be increased by £21 per week. This is initially projected to cost £5.6 billion, falling to £4.3 billion as wages rise. [The PBR08 document indicated the 0.5% increase in NI rates would raise £5.39 billion in 2011/12, while PBR09 indicated the further 0.5% increase in NI rate would raise an additional £4.64 billion. Thus the Conservative’s latest position on the NI increase would reduce the revenue raised from this measure from just over £10 billion to £4.43 billion, to be funded by £12 billion a year efficiency saving measures to be implemented across Whitehall.]

3.2. Labour

All NIC rates to increase by 1% with effect from 6 April 2011.

3.3. Liberal Democrats

Combat leakage of National Insurance contributions by changing the taxation of benefits-in-kind, such as private health insurance, leading to a fairer basis of pay.

Reverse the proposed increase in NIC as soon as resources allow.

5. VAT

5.1. Introduction

None of the parties has a firm commitment on VAT policy. The view that VAT would be a strong contender for tax rises, whichever party wins the election, is partly based on data showing that Britain has one of the lowest VAT rates in Europe. Official documents have revealed that the Treasury considered announcing a VAT increase to 18.5 per cent in 2011-12 in the 2008 pre-Budget report (per FT 22 March 2010).

Policy Exchange, viewed as one of Tory leader David Cameron’s favourite think-tanks, said modelling and academic research showed the idea established in the 1970s and 1980s that VAT was less damaging than income tax was no longer valid. “We found that, contrary to what is widely assumed amongst journalists and politicians, increasing VAT would be more damaging to economic growth than increases in the basic rate of income tax,” the report concluded. This effect was so clear that politicians should consider restructuring taxes by raising the basic rate of income tax and cutting VAT, it said (per FT 22 March 2010).

5.2. Conservatives

5.3. Labour

No extension of VAT to food, children’s clothes, books, newspapers and public transport fares.

5.4. Liberal Democrats

Do not propose to raise VAT (Nick Clegg 8/4/10)

6. CAPITAL GAINS TAX

6.1. Conservatives

The Conservatives have said they are in “listening mode” about whether future reforms to CGT would make sense (FT 15 March 2010).

6.2. Labour

To encourage entrepreneurship Labour has doubled the value of capital gains that can be made under Entrepreneurs’ Relief for lifetime gains to £2m (giving an effective CGT rate of 10% on such gains). This will cover cumulative gains and the new limit came into force on 6 April 2010.

Mr Darling acknowledged that the Treasury will, at some point, have to close the gap between the 18% flat rate of CGT and the new top rate of income tax of 50%, which he knows is being used by the wealthy to cut their tax bills (FT 15 March 2010).

6.3. Liberal Democrats

Align capital gains tax to income tax rates to prevent people from having an incentive to present their income as capital to pay a lower rate of taxation. Will reduce the annual exemption of capital gains tax, from £10,100 to £2,000, to stop this allowance being used for tax planning.

Those who use second homes as speculative investments to pay income tax rates rather than the CGT rate.

Introduce a levy of 1% on the value of properties worth over £2m.

7. INHERITANCE TAX

7.1. Conservatives

Raise the Inheritance Tax (IHT) threshold to £1 million.

7.2. Labour

Maintain the IHT nil rate band at £325,000 until 2014/15.

7.3. Liberal Democrats

Have indicated that they are not in favour of raising the nil rate threshold.

8. TAX CREDITS AND CHILD TRUST FUNDS

8.1. Conservatives

Stop new spending on Child Trust Funds for better-off families. However, disabled children and the poorest one third of families to continue receiving both new Child Trust Funds at birth and top-up payments.

Stop paying Child Tax Credits to those earning over £50,000.

Reform administration of the tax credits system.

8.2. Labour

Will maintain tax credits.

Additional support through tax credits will be targeted at children, with additional support through the child element of the Child Tax Credit of £4 per week for families with children aged 1 and 2 years old from April 2012 (Toddler tax credit). From April 2010, there will be additional annual payments of £100 into the Child Trust Fund accounts of disabled children. Severely disabled children will receive £200.

8.3. Liberal Democrats

Scrap the “Child Trust Funds” or restrict tax credits.

10. STAMP DUTY

10.1. Conservatives

Take nine out of ten first time buyers out of Stamp Duty altogether.

10.2. Labour

Reduced the rate of SDLT for first time buyers for properties with a value up to £250,000 to nil for two years.

Raise the rate of SDLT on residential properties to 5% for properties with a value exceeding £1m.

10.3. Liberal Democrats

Make sure wealthy individuals and businesses cannot avoid paying stamp duty land tax, as they do at present by setting up an offshore structure.

Create a decentralised energy revolution by introducing a system of feed-in tariffs to encourage micro-generation of electricity.

Expand offshore wind and marine power and provide government backing for a network of large-scale Marine Energy Parks.

Accelerate the demonstration of carbon capture and storage technology, in which Britain should have a leading position but is being overtaken by other countries that lack the skills, research, industrial and geographical advantages that we enjoy.

Give energy companies incentives to build a national recharging network for electric cars.

Give every household an entitlement of up to £6,500 worth of energy efficiency investments, financed by energy providers and paid for from part of the resulting savings in energy bills.

Increase the proportion of tax revenues accounted for by environmental taxes, but any additional revenues from new green taxes that are principally designed to change behaviour will be used to reduce the burden of taxation elsewhere.

Reform the ineffectual Climate Change Levy so that it is more closely linked to carbon emissions in order to provide the right incentives for investment in low carbon technologies.

11.2. Labour

As firms invest in insulating people’s homes, renewable energy and nuclear power, and in new technologies such as electric vehicles, we will create around 400,000 new green jobs by 2015 – making 1.2 million British jobs in the environmental and low carbon sectors in all.

The Labour party intends to opt nitrous oxide gases from nitric acid production into the EU Emission Trading System from 2011.

From 1 April 2011 the climate change levy (CCL) discount available to energy intensive sectors participating in the climate change agreements (CCA) scheme will reduce from 80% to 65% across all taxable commodities. CCL rates will increase in line with inflation in 2011-12.

On 1 April 2010, the main fuel duty rate will increase by one penny per litre. It will then rise by a further one penny per litre on 1 October 2010 and by 0.76 pence per litre on 1 January 2011. Fuel duty will rise by one penny per litre in real terms in April 2014.

11.3. Liberal Democrats

Replace air passenger duty with a per-plane tax, thereby taxing air freight and also providing an incentive for airlines to fill seats and discourage them from running empty flights.

Introduce a levy on domestic flights to discourage travellers from choosing air travel over land for journeys which would take less than six hours by rail.

Require energy companies to simplify the complicated tangle of different tariffs. Roll out smart meters to all households within five years and insulate all of Britain’s homes to a decent standard within 10 years.

With respect to rural communities, provide more homes for local people by increasing councils’ powers over second homes and promoting schemes for affordable homes.

Deliver broadband coverage and quality in rural areas.

Invest up to £400 million in refurbishing shipyards in the North of England and Scotland so that they can manufacture offshore wind turbines and other marine renewable energy equipment.

Launching an ‘Eco Cash-Back’ scheme, for one year only, which will contribute £400 towards the installation of double glazing, replacement of an old boiler, or installation of micro-generation.

Investing £140 million in a bus scrappage scheme.

Begin a ten-year programme of home insulation, offering a home energy improvement package of up to £10,000 per home, paid for by the savings from lower energy bills, and make sure every new home is fully energy-efficient by improving building regulations.

Improve energy efficiency in the commercial and public sectors, by strengthening the Carbon Reduction Commitment Energy Efficiency Scheme.